Legal and Regulatory Death or insanity of the principal or agent

Environment of
An agency is terminated automatically in the event of the death of the principal or the agent,
Business
or if either becomes insane [Section 201]. The principal’s insanity puts an end to the agency even
Notes though the agent has no notice of it [Yonge vs Toynbee 17].

Insolvency of the principal

The principal’s insolvency does terminate the agent’s authority. Besides, the insolvency of the
agent also terminates his authority if it makes him unfit to perform his duties [Section 201].

Expiry of time
Where the agent is appointed for a fixed term, the agency comes to an end by the expiration
of the stipulated time (unless the term of agency has been extended), whether the purpose of
the agency has been accomplished or not [Lalljee vs Dadabhai 18].

Destruction of the subject matter

Destruction of the subject matter of the agency automatically puts an end to it. For example, A
employs someone to let his house. The house collapses in an earthquake, the agency ceases to exist.

Dissolution of company
Where the principal or the agent is an incorporated body (i.e, company), the agency comes to
an end on dissolution of the company.

Upon principal or agent becoming an alien enemy

Where the principal and agent are the citizens of two different countries, their agency relation-
ship comes to an end in the event of an outbreak of war between the two nations. The reason
behind the same is simple. As a consequence of war, the principal and the agent become alien
enemies to each other and the existing contract of the agency becomes unlawful.

Termination of sub-agent’s authority

The termination of the authority of an agent causes the termination (subject to the rules herein
contained regarding the termination of an agent’s authority) of the authority of all sub-agents ap-
pointed by him [Section 210].

Termination of agency: When does it take effect?

The termination of agency as regards the agent and as regards the third parties takes effect at
different points of time. Section 208 is very clear in this regard. It states as follows:
1. The termination of the authority of an agent takes effect when the agent is apprised or
informed about it. Thus, where the principal revokes agent’s authority, the revocation
will take effect when the agent comes to know that the principal has revoked his authority.
2. As regards third parties, the termination takes effect when it comes to their knowledge. So,
where an agent whose authority has been revoked to his knowledge makes a contract with
a third party who deals with him bona fide, the contract will be binding on the principal as
against the third party. Hence, third parties may deal with the agent, as such, till they come
to know of the termination of the agent’s authority. Examples in Box 6.20 will help under-
stand the point better.

Irrevocable Agency
When the principal cannot revoke the authority given to an agent, the agency is termed as an
‘irrevocable’ one. An agency is irrevocable in the following cases in the sense that any attempt to
revoke it is not merely a breach of contract but also ineffective. The agent’s authority continues
despite the attempt to revoke it.

Where agency is coupled with interest

Self-Learning When the agent has substantial interest in the property, which forms the subject matter of
118  Material the agency, the agency is said to be coupled with interest. An agency coupled with interest